BENGALURU: Due to rising employee costs and travel expenses, operating profitability of IT services companies could fall back to the pre-pandemic low of 22-23% this fiscal compared with 24% in FY22.
According to a report by CRISIL, from about 19% growth in the last fiscal, the IT services sector will sustain 12-13% revenue growth this fiscal, mainly driven by digitalisation, strong demand for new-age technologies and depreciation in the rupee.
The sector’s 19% growth in FY22 was the highest in the past 8 years, says the report, adding the higher growth in FY22 had come on the back of a modest uptick of 6% in fiscal 2021, which was hit by the first wave of the pandemic.
Aditya Jhaver, director, CRISIL Ratings, said, “With spending on cloud infrastructure expected to grow 1.5 times in the next three years and increasing adoption of new-age technologies such as cybersecurity and IoT, the digital share of revenue of Indian IT service players may cross 50% over the next 1-2 years (47% in fiscal 2022).”
Analysts at ICICI Direct Research expect Infosys and HCL Tech to maintain their annual revenue and margin guidance. While the largest IT services company Tata Consultancy Services (TCS) will declare its first-quarter results on July 8, Wipro will declare results on July 20.
Infosys said it will present its results to the board of directors on July 24. According to YES Securities, revenue growth is expected to be 2-4% Q-o-Q in USD terms for large-cap IT companies. The depreciation of average INR vs USD by 2.7% Q-o-Q during the quarter would boost revenue growth in INR terms by around 200-240bps Q-o-Q. It said Tier-II IT companies are expected to report revenue growth of 2-5% in USD terms Q-o-Q.
IT sector growth
The sector’s 19% growth in FY22 was the highest in past 8 yrs, says the report, adding the higher growth in FY22 had come on the back of a modest uptick of 6% in fiscal 2021